Under the ATF’s Operation Fast and Furious, gun smugglers were allowed to buy the weapons in the hopes the US agents could track the firearms to the Mexican drug runners and other border-area criminal gangs as well as build cases against the gun dealers themselves.

Also facing criticism are the rules of engagement employed by US border agents, who are trained to use nonlethal force when possible.

The Dec. 14 shootout in Peck Canyon, near Nogales, Ariz., occurred after border patrol agents halted a group of armed border bandits and fired at them with bean bag guns. The bandits then opened fire with live bullets from AK-47 submachine guns, killing Mr. Terry.

Critics of US border patrol procedures, including Terry's family, say that Terry, a former Marine, was operating under specific Department of Homeland Security (DHS) orders that required agents encountering suspected illegal immigrants on US soil to fire nonlethal bean bags before using live ammunition.

DHS: No orders overriding agents' judgment

DHS has denied the bean-bag gun allegations, saying agents are trained to use "less-than-lethal force" weapons but that no specific orders overriding the best judgment of agents have come down from management.

Similarly, the Department of Justice initially denied that ATF knowingly allowed guns to be sold to drug runners, a statement contradicted by later reports from whistleblowers and admissions from officials that the agency did lose track of hundreds of guns as part of Operation Fast and Furious.

The events in Peck Canyon place into sharp relief the political problems of managing the increasingly violent borderlands between the US and Mexico, where treatment of illegal immigrants on the US side and the flow of arms from the US into Mexico have become powder keg issues in the relationship between the two countries.

"This is a management issue in both cases," says Mark Krikorian, director of the conservative Center for Immigration Studies. "The bean bag thing is a symbol of fake border enforcement, where this administration wants to go through the motions of border enforcement without actually doing it. An ordinary agent is not going to say, 'Let's shoot bean bags first’ if they've got guns. I also can't imagine an ATF guy getting a call from a gun store where they say, ‘Hey, someone is buying a bunch of AKs, it smells bad,' and where that agent then says, 'No problem.' "

ATF to investigate its policy

Thursday night, Kenneth Melson, the ATF's acting director, said the ATF has ordered an investigation into Operation Fast and Furious. The agency “will ask a multi-disciplinary panel of law enforcement professionals to review the bureau’s current firearms trafficking strategies employed by field division managers and special agents," Melson said in a statement.

Mr. Melson added that the review “will enable ATF to maximize its effectiveness when undertaking complex firearms trafficking investigations and prosecutions. It will support the goals of ATF to stem the illegal flow of firearms to Mexico and combat firearms trafficking in the United States.”

Operation Fast and Furious began in October 2009 as ATF faced growing political pressure and a push from the agency's inspector general to, in essence, aim higher to stem what appeared to be large caches of US-purchased AK-47s and even .50 cal weapons flowing into Mexico and being used in that nation's violent drug war.

In response, the ATF decided to allow illegally purchased guns to "walk" in order to track their path and build more substantive cases against bigger-time criminals. ATF officials told the Center for Public Integrity that the ATF allowed a total of 1,998 weapons to pass from gun shops to straw buyers connected to the gun-running rings, with full understanding that those weapons could be used in the commission of crimes. Of those weapons, 797 were recovered by the ATF as a result of some kind of criminal investigation, including 195 inside Mexico.

An attempt to get at 'key people'

“When we look at the complexities of the organizations working around the border of Mexico, just dealing with the lowest level purchaser, the straw purchaser, doesn’t get you to the organizer, the money people and the key people in that organization to shut that down," ATF's assistant field director, Mark Chait, told the Center for Public Integrity.

"We found that if we don’t attack the organization and shut the organization down, they will continue to move guns across the border. It’s kind of a somewhat common sense approach that if you don’t get to the higher-level folks that are making the calls, then guns will continue to cross the border.”

Many ATF officers were "anguished" over Operation Fast and Furious, saying it was inevitable that guns would be used to commit crimes, thus putting blood on the ATF's hands.

Agents feared that the guns "are going to be turning up in crimes on both sides of the border for decades," ATF agent John Dodson, a whistleblower in the case, told the Center for Public Integrity's reporting team. "With the number of guns we let walk, we'll never know how many people were killed, raped, robbed ... there is nothing we can do to round up those guns. They are gone."

On Dec. 16, agents' worst fears were realized as a border patrol SWAT team, including Agent Terry, tracked a small group of armed men through Peck Canyon. ATF says there's no forensic evidence that shows the two "lost" guns found at the scene were used to kill Agent Terry. What is now clear is that, for some reason, the first projectile to fly that day was a bean bag.